Key US securities
developments

The time of drafting of the ECM review this year in late January, mere days after the inauguration and start of the second Trump administration, is a particularly perilous time to make predictions about the shape of securities law regulation and SEC priorities for 2025. We therefore intend be prudent for the time being, and say that priorities will be very different from those of the outgoing Biden administration and former SEC Chair Gary Gensler, with a likely element of unpredictability as we make our predictions.

Areas of difference notwithstanding, it is worth noting that (i) the SEC is a bipartisan Commission, led by five Commissioners with equal votes and a Chair who has the ability to set a collaborative agenda, (ii) a large majority of decisions taken by SEC Commissioners are unanimous and (iii) the large majority of enforcement cases are settled. We hope that this cohesiveness will continue to characterise SEC decision-making as a strong and united SEC has been very important for US capital markets to grow, lead and thrive and in enabling the SEC to execute its core mission of investor protection.

But based on past statements and the long experience (at the SEC and otherwise) of former Commissioner and new nominee Chair Paul Atkins, and on the record of dissenting Republican Commissioners, some direction of travel is likely to emerge and to emerge very quickly.

The immediate market backdrop for 2025 is a roaring fourth quarter of 2024, with banking and trading revenue increasing substantially on the back of the election and the expected impact of taxes and deregulation on M&A, debt and equity underwriting and on markets generally. CEO confidence is high, and business leaders are in the mood to do deals. Investment banking revenue jumped 35% in Q4 across the five largest US banks, and banks expect the same direction of travel for 2025, albeit uncertainties surrounding the new administration's trade policies and global tensions having dampened activity at the beginning of the year. That is to say that when market conditions are such that deals are ready to be done, there is capital formation that can be facilitated by deregulation, reducing compliance costs and streamlining enforcement.

Yet, there will be differences in important areas. The incoming administration appears to have very different views on climate change and on the need and appropriateness of standardising and regulating climate-related disclosures through the SEC disclosure review process and more generally less of a focus on environmental, social and corporate governance issues. The prior SEC's ambitious rule-making efforts regarding carbon emissions and climate-related risks, already paused among legal challenges in the US courts, are likely to be scrapped or at least significantly scaled back with primary regulators in this area more likely to be found in Europe or US states such as California.

Chair Atkins' nomination to lead the SEC has also been hailed by cryptocurrency advocates, as they hope for a more favourable regulatory environment. The SEC under former Chair Gensler, building on past SEC practice, targeted many of the biggest crypto companies with lawsuits and declined to promulgate rules for digital assets, stating that many tokens were, under the Howey test, securities that were already regulated by clear, existing laws. The SEC under Chair Atkins is widely expected to adopt a friendlier approach, including a reduction in enforcement actions.

Major changes may also be in store for the main audit watchdog in the United States, the Public Company Accounting Oversight Board, or PCAOB, of which Chair Atkins has been critical. This could lead to a softer regulatory touch, including scaled back PCAOB jurisdiction, diminished penalties, slower rulemaking and a smaller budget, as well as changes in leadership. Prior proposals to consolidate the PCAOB into the SEC may be reinvigorated.

The capital markets in the United States have repeatedly demonstrated resilience and the ability to innovate over the years, whether the topic be the regulation of digital assets, the commercial use of artificial intelligence or a range of other issues, as the securities markets change and adapt constantly. Sound and sensible regulation fostering capital formation while protecting investors has long been key to the vibrancy of US capital markets, which we expect to continue, irrespective of changes in administration, approach and priorities.

While, as discussed above, priorities will undoubtedly shift with the new administration, some sense of the Commission’s plans for enforcement and examination in 2025 can nevertheless be reasonably predicted.

A more pro-business stance is likely to emerge from the Trump administration broadly, including at the SEC, as can be seen from an examination of both the actions of the SEC during the first Trump administration and in the actions of Republican commissioners during the Biden administration. President Trump’s nominee to chair the SEC, former commissioner Paul Atkins, was viewed as having a conservative ideology during his time on the Commission, with a broadly free-market view. The SEC’s shift in position can be expected to be evident in a number of areas, including: (i) a reduction in cryptocurrency-related enforcement actions; (ii) a rollback of ESG and DEI-related enforcement actions and rulemaking, particularly with respect to the SEC’s 2024 climate disclosure rule; and (iii) a likely shift in emphasis in cybersecurity enforcement to focus on material financial impacts to companies and investors. It is also likely that the SEC will dial back its push under the prior regime for ever higher civil penalties – especially with respect to issuers where the penalties are ultimately borne by shareholders – and a return to a corporate benefit analysis. One thing will not change. The SEC will continue to devote substantial resources to traditional areas of enforcement involving harm to investors and illicit gains to fraudsters. These include, among others: (i) public company reporting, accounting, and disclosure; (ii) insider trading; (iii) fraud in the offer or sale of securities; and (iv) market manipulation.

The SEC’s Division of Examinations additionally recently released its Fiscal Year 2025 Examination Priorities, including as regards a variety of types of entities. Specifically, the SEC’s announcement emphasizes the impact that emerging technologies have had on new and existing risks to the industry and its customers. Among the areas that the SEC’s report chose to highlight are: (i) investment advisers’ adherence to fiduciary standards; (ii) the importance of compliance programs; (iii) examination of broker-dealers under Regulation Best Interest, concerning recommendations to retail investors; (iv) cybersecurity procedures and practices, including the safeguarding of customer records and information; (v) the use of automated investment tools, generative AI, and trading algorithms, including whether the use of such technologies comports with disclosures made to investors and the controls and procedures surrounding their use; and (vi) activities involving crypto or related products. These announced priorities for FY 2025 are similar to those that the Commission announced (and acted upon) for FY 2024.

As SEC registrants, including foreign private issuers, gear up for the publication of their annual reports on Form 10-K or Form 20-F, disclosure topics that have attracted the attention of the SEC via public statements and recent comment letters should be considered.

Economic conditions

As SEC registrants, inclu ding for ign private issuers, gear up fo r the pub lication of their an nual reports on Form 10-K or Form 20-F, disclosure topics that have attracted the attention of the SEC via public statements and recent comment letters should be considered.

Artificial intelligence

As artificial intelligence ("AI") becomes increasingly prevalent in businesses, companies should assess whether they have adequate AI disclosure. Director Gerding noted in an announcement that SEC Staff will consider how companies are describing AI-related opportunities and risks, including, to the extent material, whether a company: (i) clearly defines what it means by AI and how the technology could improve the company’s results of operations, financial condition and future prospects; (ii) provides tailored, rather than boilerplate, disclosures about material risks and the impact the technology is reasonably likely to have on its business and financial results; (iii) focuses on the company’s current or proposed use of AI technology rather than generic disclosure not relating to its business; and (iv) has a reasonable basis for its claims when discussing AI prospects.

Cybersecurity

Following the adoption of the SEC cybersecurity disclosure final rules, most SEC reporting companies provided the required disclosure in their annual report for the first time in 2024. The SEC Staff recent comments on such disclosure has focused on inconsistent statements regarding the use of third parties in cybersecurity risk management, inadequate disclosure regarding the relevant expertise of members of management or management committees, and whether and how the company's process for assessing, identifying, and managing material risks from cybersecurity threats has been integrated into its overall risk management system.

SEC final rules on climate-related disclosures

On 6 March 2024, the SEC adopted final rules on climate-related disclosures. These long-awaited rules set out what climate-related information US-listed companies, including foreign private issuers, are required to disclose in their annual reports and registration statements filed with the SEC. This broadly includes disclosure of material climate-related risks and impacts on strategy, business model and outlook, board and management oversight of climate-related risks, risk management, climate-related targets and goals, Scopes 1 and 2 greenhouse gas ("GHG") emissions, and financial statement disclosures. Notably, the key differences from the proposed rules include the elimination of Scope 3 GHG emissions disclosure requirements, limitation of Scopes 1 and 2 GHG emissions disclosure to certain filers and only if such emissions are material, and elimination of climate-related board of directors' expertise disclosure requirement.

On 4 April 2024, the SEC voluntarily stayed the rules pending the completion of judicial review by the US Court of Appeals for the Eighth Circuit, where legal challenges to the rules brought by several interested stakeholders have been consolidated. Pursuant to the SEC's order staying the rules, the effective date of the rules is delayed indefinitely. However, the SEC's order does not delay the compliance dates under the rules and absent additional guidance by the SEC or the Eighth Circuit, the compliance dates would remain the same if the Eighth Circuit were to uphold the rules, under which reporting would first begin in 2026 by large accelerated filers for the 2025 fiscal year.

Climate reporting developments at state level

Amid uncertainty with respect to the fate of the SEC climate disclosure rules, certain individual states have continued pushing forward on climate-related disclosures.

On 27 September 2024, California Governor Gavin Newsom signed into law Senate Bill 219 ("SB 219"), which makes certain amendments to Senate Bills 253 ("SB 253") and 261 ("SB 261") introduced in 2023. The third California climate bill, Assembly Bill 1305 ("AB 1305") was not amended. SB 219 does not substantively change the climate disclosure framework set out under SB 253 and SB 261, but rather clarifies questions regarding those laws, including by granting the California Air Resources Board until 1 July 2025 to adopt implementing regulations relating to the disclosure of GHG emissions.

SB 253 requires US companies with more than $1 billion in annual revenue that do business in California to report Scopes 1 and 2 GHG emissions annually beginning in 2026, and Scope 3 GHG emissions beginning in 2027. SB 261 requires US companies with more than $500 million in annual revenue that do business in California to biennially prepare and disclose a climate-related financial risk report beginning in 2026. AB 1305 mandates disclosures about emissions reduction claims and voluntary carbon offsets by any company that makes emissions claims within California or that purchases, uses, markets or sells voluntary carbon offsets within California and first disclosures must be made by 1 January 2025.

SB 253 and SB 261 are currently subject to an ongoing legal challenge in the US District Court for the Central District of California. On 5 November 2024, the District Court denied the plaintiffs' motion for summary judgment for impermissibly compelling speech in violation of the First Amendment. While the litigation continues to discovery, the implementation of the rules is not stayed pending the outcome of the litigation. In December 2024, the California Air Resources Board exercised enforcement discretion to not take enforcement action against companies for incomplete reporting of Scopes 1 and 2 GHG emissions for the first report due in 2026, as long as they make a good faith effort to retain all data relevant to emissions reporting.

New York and Illinois are also in the process of developing their own mandatory climate disclosure laws. New York’s Senate Bill S897A would require any business entity that does business in New York with more than $1 billion in annual revenue to annually disclose Scopes 1, 2 and 3 emissions. Similarly, Illinois' House Bill 4268 would require US entities doing business in Illinois with more than $1 billion in annual revenue to annually disclose and verify their Scopes 1, 2 and 3 GHG emissions.

On the other hand, Florida Governor Ron DeSantis announced in 2024 that Florida will begin enforcing violations of its anti-ESG legislation, HB 3, that was adopted in 2023. Under HB 3, among other requirements, any asset manager that invests Florida public funds must make investment decisions based solely on "pecuniary factors", which does not include the consideration of "social, political, or ideological interests." Meanwhile, in Texas, a nonprofit organization, the American Sustainable Business Council, has filed a lawsuit against the state to block a state law that restricts Texas from investing in or contracting with businesses that support reducing reliance on fossil fuels.

Diversity disclosure rules

With regards to the "G" in ESG regulation in the US, the Nasdaq's board diversity rules were vacated by the US Court of Appeals for the Fifth Circuit in December 2024. The Fifth Circuit held that the SEC exceeded its statutory authority when it approved the rules, which required Nasdaq-listed companies to (i) publish a matrix reflecting company boards’ gender and racial/ethnic composition and (ii) have a minimum number of women and diverse directors or explain why such diversity is not present. Nasdaq notified listed companies that it respects the Fifth Circuit's decision and does not intend to seek further review.

2024 was marked by a lack of clarity on the regulation of cryptocurrencies and related digital assets. The SEC continued its aggressive approach to enforcement by bringing civil actions against cryptocurrency intermediaries while encountering some headwinds from federal judges and Congress.

The SEC enforcement action principally targeted unregistered broker-dealers and exchanges rather than alleged fraudulent activity. The SEC consistently rejected numerous calls to adopt a new set of rules tailored to crypto, instead suggesting that existing federal securities laws can be applied to digital assets. The SEC and federal judges implemented the "Howey test" to several high-profile cases in 2024, which is the US Supreme Court's framework to determine whether a transaction qualifies as an investment contract and therefore be considered a security.

Federal judges have held divergent views on the application of the "Howey test" to digital currencies, including within the same district court. When implementing the "Howey test", courts have examined whether the test should consider the "manner-of-the-sale" of the crypto assets or the "ecosystem" theory as favoured by the SEC. The District Court for the Southern District of New York (SDNY) and the District Court for the Northern District of California in two noteworthy decisions upheld the SEC's "ecosystem" theory in enforcement actions against Coinbase and Kraken, under which courts examined whether there was an ecosystem around a digital token to assess whether such token was a security. It is worth noting that the SDNY in a previous occasion favoured the "manner-of-sale" approach, which was also followed by the District Court for the District of Colombia against the crypto platform Binance. That court also clarified that Binance's stablecoin was not inherently a security as the defining feature of a stablecoin is to maintain a pegged value.

Further developments are expected in these instances, as a federal judge recently granted Coinbase's motion for an interlocutory appeal which in effect pauses the SEC's registration suit against the platform until the Second Circuit examines the application of the "Howey test" to Coinbase. This will in turn have without any doubt precedential value in other pending and future litigation.

Revisions to the Securities Exchange Act of 1934, including amendments to the definitions of "dealer" and "government security dealer" which would have applied to cryptocurrency intermediaries were vacated by a federal court. A bipartisan bill that rescinded controversial SEC Staff Accounting Bulletin 121 ("SAB 121") was voted by the Congress, before being vetoed by President Biden. SAB 121, which was recently rescinded by the newly appointed SEC Acting Chairman Mark T. Uyeda, required custodians of crypto assets to report them as liabilities in their balance sheet and imposes additional disclosure requirements. This was together with other pushback to SEC rulemaking.

Cryptocurrency players have expressed their frustration over oversight by litigation, which has no doubt led in part to inconsistent results and much regulatory uncertainty. The House of Representatives has tried to add some clarity in the form of the Financial Innovation and Technology for the 21st Century Act ("FIT 21"), which has not been enacted but has received bipartisan support. If enacted, FIT 21 would provide a welcome clarification to crypto regulation by setting a new framework to determine whether a cryptocurrency would fall within the jurisdiction of the SEC or the CFTC. Under this new set of rules, centralised assets (designated as "restricted digital assets") would qualify as securities, over which the SEC would have regulatory authority. This would subject such cryptocurrencies to regulation under federal securities laws. Decentralised assets, which would capture most cryptocurrencies, are referred to as digital commodities and would be regulated by the CFTC. While the Senate has not voted on the FIT 21, we believe it will most likely be used as a starting point by the new administration.

Announcements made by the new administration signal further developments to crypto regulations in the upcoming months. An executive order signed by President Donald Trump shortly following the change in administration established a President's Working Group on Digital Assets Markets under the National Economic Council. The Working Group must issue a report within 60 days identifying rules and regulations affecting the digital asset sector that may be amended, and subsequently issue a second report within 180 days suggesting regulatory and legislative proposals. The Working Group will include, among others, the Secretary of the Treasury, the Attorney General, the Chairman of the SEC and the Chairman of the CTFC. This presidential order follows the recent announcement by Acting Chair Uyeda of the creation of a crypto task force "dedicated to developing a comprehensive and clear regulatory framework for crypto assets". The task force will also coordinate with the CFTC, which reflects the fact that the desire for increased collaboration between the SEC and the CFTC is high on the agenda of the new administration.

The SEC amendments to Rule 15c6-1 of the US Securities Exchange Act of 1934 which shortened the standard settlement cycle to "T+1" for most securities transactions went into effect on 28 May 2024.

Parties in a firm commitment underwritten offering that is priced after 4:30 p.m. Eastern Time now have two business days to settle, unless otherwise expressly agreed to by them at the time of the transaction. If a T+1 settlement is not practicable, the parties may agree to an alternative settlement cycle pursuant to the exception under Rule 15c6-1(d). This exception should be considered in transactions such as: (i) debt refinancings that require redemption notices; (ii) capital markets transactions by non-U.S. companies involving U.S. dollar net proceeds that are to be converted into foreign currency; and (iii) certificated, restricted or pledged securities, whereby a longer period may be needed to obtain the requisite documentation to enable free transfer of the shares.